Metro Brands Q2 Results Review - Weak Gross Margin Led To Miss; Growth To Pick Up In H2: Motilal Oswal

Motilal Oswal Report

Metro Brands Ltd.’s revenue grew 5% YoY (in line, -1% YoY in Q1), driven by ~9% YoY area additions. Gross profit grew 2% YoY (3% miss) due to ~100 bp impact of FILA inventory liquidation at higher discounts.

Ebitda was flat YoY (5% miss) on account of lower gross margin, while PAT grew 6% YoY (7% miss).

H1 revenue (2% YoY) and Ebitda (-2% YoY) were muted. However, management expects pick-up in H2 to drive 10-15% YoY revenue growth and Ebitda margins to expand to ~30% for FY25 (versus ~29% in H1).

We lower our FY25/26 revenue/Ebitda by 1-4% and PAT by 3-5% on account of weaker H1.

However, given the pick-up in store additions; a long runway for growth in Metro, Mochi, and Walkway formats; and significant growth opportunity in FILA/Foot Locker, we build in revenue/Ebitda/PAT CAGR of 14%/18%/20% over FY24-27E.

We reiterate our Buy rating on Metro Brands with a target price of Rs 1,465 based on 70 times Dec’26 EPS (implying 26% upside).

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